Atlanta Human Resources Consulting and Executive Coaching Firm Articles by Corporate Performance Strategies

The headlines recently have proclaimed the news of more huge mega-mergers affecting Georgians than at any time in the past five years. And at the same time, reporters are quoting executives shamelessly touting how the big deals will benefit anyone and everyone holding their shares, from directors in the boardroom to grandma in the living room.

Bank of America and FleetBoston Financial. Blue Cross/Blue Shield and Wellpoint Health Networks. R.J. Reynolds and British American Tobacco - all massive financial, personnel and operational undertakings that have been declared to have the potential to strengthen the emerging parent company's revenue and overall financial picture.

If history is any indicator, and it usually is, you can expect to read headlines of a different sort in the not too distant future that tell of how half of these mergers failed. Research consistently shows a crash and burn rate exceeding 50 percent for mergers in general, and the prospects for disaster are even greater as the deals get larger. Most mergers simply fail to realize the value and synergies proclaimed so positively in the pre-deal hype.

NOTABLE FAILURES
Consider the mega deal failures that busted shareholders and CEOs in the 1990s: McKesson and HBO, Daimler-Benz and Chrysler, Allied Signal and Honeywell, Aetna and Prudential, Federated and Fingerhut, Mattel and Learning Co., Conseco and Green Tree Financial, on and on, take your pick. These mergers were planned and executed by some of the brightest business, financial and legal minds in the world, so what happened? And what can happen to the big mergers just announced within the past month?

Here's why most mergers fail; these are the tripwires to landmines on which BofA, Blue Cross/Blue Shield and RJ Reynolds must be careful not to tread:

Poor strategic fit and/or overpayment
Inadequate due diligence
Prolonged integration process
Leadership void and clashes
Inadequate communications - at all levels
Cultural differences
Internal versus customer focus
Operational integration failures
Loosely coordinated transition processes

HOW TO DO IT RIGHT
The Hewlett-Packard/Compaq merger is an instructive example (at least so far) of a transaction that was thoroughly planned out with more attention given to post-deal integration initiatives than many business observers have seen in years. Over a period of more than nine months prior to closing, about 1,500 executives, managers and consultants (one percent of the workforce) at HP and Compaq together created a solid, comprehensive, workable and flexible transition and integration strategy that today is still unfolding nicely. Most experts believe that if this merger goes south, it will be because it was not a good strategic fit, period. Virtually everything else has been thought of and is being done to make it work. Just a few best practices to make sure a merger lives past its first year include:

Speed: The transition must be swift and cannot be allowed to prolong itself. Managers must rapidly make tough decisions regarding a variety of issues: customer and prospect communications, phone greetings, business cards, consolidations, benefits plans, compensation practices, restructuring, new leadership, branding, downsizing and other issues. Having a well-defined plan and process increases the chances of successful integration.
Consolidated management: The best and most viable deals actually name the senior management team prior to closing or immediately afterward. Everyone's eyes are on the top leadership team and this is critical to success. No missteps can be made here.
Vision: A clear, concise, understandable and achievable vision must be established for the combined entity - and it absolutely must be communicated internally and externally, constantly.
Communication: Communication. Communication. Communication.
Leadership: Appoint a senior executive and vest him or her with complete responsibility and authority for implementation of the integration plan. That will be their only job 24/7. This executive should resource the integration function and not assume employees with regular jobs can handle the new set of tasks presented by integration.
Cultures: Realize that most integrations fail due to cultural mismatches, so understand the changing dynamic of the emerging culture and consciously work to managing the blending smoothly.
Operations: Develop combined sales/marketing/service plans.
Focus: Smart merger managers put their focus on the 20 percent of the business opportunities that drives 80 percent of the value in the deal.
Staff realignment: Remove those who do not support or fit into the new culture and consider retention programs for key employees who clearly will be long-term assets and team players. Make the tough decisions now.

Dave Brookmire, President
Corporate Performance Strategies, Inc.
3340 Trails End Road
Roswell, GA 30075
Phone: 770-587-2265
dbrookmire@cpstrat.com
www.cpstrat.com

Beware today's merger mania may result in some painful tomorrows